UK Hedge Fund Comp Question
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Welcome to the real world and not the inflated nonsense you hear on WSO. HF pay is incredibly meritocratic so base is usually less than IBD and bonuses can be bigger for significant outperformance. That bonus structure does seem questionable.
You should ask this fund:
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Whether that 20-40% is due to you joining late is something you should definitely clarify with them before signing. I think bonus payment is dependent on the fund so there isn't a general answer to that question.
As an entry level analyst at a HF I would say that probably 40-70% is a solid target and this should scale as you become more of a risk taker at the firm
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On the bonus payment timing - I would normally check when the fiscal year end of the fund is and add four to eight weeks to that. Most UK HFs are December, March or November for tax purposes.
On the money vs IBD, I would think slightly longer term about who you are as a person and what you wish to achieve. If you wish to simply be a cog in an IBD machine then stay in IB. If you are intelectually curious and want to do financial analysis to put capital to work then go for the HF as the comp should go up exponentially from your entry point once you begin to add value. You only have 12 to 24 months of experience and your colleagues will be dedicating a lot of time to training you in year one. Once you begin contributing then pay can go up a lot as you begin to drive returns that are visible in the P&L.
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As a junior at a single manager HF you are viewed as a fixed-cost and your comp will have no link to P&L or performance. When I joined the London office of a US HF (this was back in 2013) I was offered a base of £85k and my first year bonus was 50% of base. Comp will ramp steadily if you do well and you could be looking at total comp in excess of £300k after year 5 and in excess of £500-600k after 7-10 years.
Given how hard it is to land a HF seat in London these days, you have zero leverage to negotiate and any attempt to do so would probably set you off on the wrong foot with your employer. Your goal is to learn as much as you can so that you are in a position to earn the >£500-600k packages later on in life. As an FYI, my colleague (late 30's) just got a £1.5m bonus this year after a great year.....HMRC will be happy!
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This is spot on in my opinion and offers the more realistic comp ranges than you see on WSO.
I think the OP is right to question comp, in reality it seems a lot of HFs in London you would in many cases be better off financially staying in investment banking. This is particularly true for the likes of millennium, balyasny etc., where you will have multiple years with 0 bonus as if your PM makes no money, you get 0.. so unless you kill it in the good years (and by you I mean your PM kills it and your PM also decides to be generous), your average comp over 5 years may not be so great. Of course HF is much more interesting, better lifestyle, but people should be aware they may take a pay cut to do it..
My 2 cents:
Offer does seem a bit low to be honest vs. market
However, as the poster above says, welcome to the real world, and not the made up BS of WSO! It is incredibly competitive to get into a HF in London as there are few seats and a lot of applicants, and so what happens when there is a lot of supply of labour and not much demand... price (of your labour) goes down!
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For more experienced analysts (2nd buyside role now) - can you/should you, and how would you start to negotiate, at what stage in the process? I've never tried negotiating before (for obvious reasons being super junior in banking etc.) I'm at the offer stage for a place, and have no leverage in my current seat given my fund is doing pretty poorly/experiencing redemptions and so lots of folks jumping ship. I've been told what the all-in comp expectation is going to be be assuming the fund does OK, with more upside on performance, but it's definitely lower than other figures I've gotten for similar funds in the market. I'm seeing comp figures for distressed/credit hedge funds $600k+ for class of 2013/2014 folks with 5-6 years of total finance experience (I believe you're in credit as well? I have friends at Anchorage and King Street in London who say they've been getting $650+ all in comp in their 3rd years at the fund). I've got another distressed offer stage as well, but no formal offer given because they suspect comp will be a similar issue (in this case it's because I know the fund just can't pay more, whereas the first fund I mentioned can definitely cough up more in pay given the economics/setup). I'm not sure whether to say I'm ok with lower pay so I can at least get the written offer in hand before negotiating. Will the fund not give me an offer if I try to negotiate beforehand, or would they even pull my offer once formally given if I wait until then to negotiate? because that this point, in order to even get to the end stage for the first place, I didn't pushback when they gave their comp thoughts at the penultimate stage.
From my experiences here - it really seems like any fund won't give you a real written offer unless you already verbally accept pretty much first.
The issue is that you are in a fund that is not doing well and, given how small the industry is, it is likely that other shops know this. From my experience there is no real "market" level of comp in HF's and really it comes down to how stingy/generous the CIO/founder is. For example, my friend who got a £1.5m bonus last year was telling me that a guy he knows doing the same job and with the same performance (at another shop) only got £500k. The guys at King Street and Anchorage might be getting better comp but unless there is an opening at those places it doesn't really matter to you or other candidates. I am of the view that longevity is what counts in this business and staying alive in a fund that is doing okay is better than arguing for a few extra £ (which HMRC will take 50% of anyway) and ending up on the outside looking in when your current shop hits the wall.
I think there is nothing wrong with talking about comp expectations during the interview/negotiation stage but the real question for you is how hard do you want to push on it. If the fund comes back and says "we see the all-in number being around $400k" I think you can mention that from your discussions with recruiters and guys at other shops $600k is the market and is there room to get there at some stage? They may say no and then the ball is in your court. What I would not do is say you are okay with lower comp to get an offer and then negotiate....this makes no sense as you have told them you are okay with lower comp.
There are HFs in Europe where you can get 200-500k in your first year with no experience, but is very team/firm dependent and not based on how good you are. Once you get into the risk taking position, you can make many multiples of that and it becomes a bit more meritocratic. You should start to push back a little, as US/Asia clearly show that junior analysts can be compensated well.
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It will be a challenge to push back. You are clearly going to a large HF which looking at the AuM has many teams within it rather than bonding with a single manager who owns 50% of the equity and has discretion over the firm.
The key about London is that the move from ER to buyside HF is a lot more common from my experience than going from IB to single manager HF like what happens in NYC (look at the backgrounds of the Tiger cubs - mostly ex IBD/). The pay structure is therefore less structured as the competition is more with ER pay for analysts/associates/VPs than it is with IBD/private equity.
HF comp is more about payment by results and how you fit in the team. Hiring is a pain (it takes up time I can be reading annual reports, modelling or meeting management teams) and if you fit in well and can generate ideas (not many on the buyside can) then they will want to keep you around and therefore will pay you accordingly. It really depends which role you have signed up for - from speaking to friends you either fit into 1/ a PM who sets the tone and has a team of analysts who grind out the work on a direct thesis for him/her; or 2/ a PM who wants the analysts to source ideas and pitch him then work towards getting ideas into the portfolio. The comp in scenario 2 is normally a lot higher than scenario 1 given if you're good at idea generation that drives capture of alpha spread then you're very valuable. Listen to the Paul Enright podcast for more about this.
Ex the pods (Citadel/Surveyor/Millenium/Baly), London is a low churn market and therefore some funds which are often mentioned on here in London just do not hire for years, especially the good ones that people aspire to on this forum. Look how few people have joined or left places like Egerton, Pelham, AKO, TCI, Hengistbury, TCI, Adelphi - the number is very low and it is normally one in, one out. Compare this to every PE firm hiring associates and it is a very different model.
What HFs are these exactly? The only place I hear offers anywhere close to 200k is G-research and that is quantitative research. I haven't heard of any fundamental HF paying 200-500k so would be very keen to hear this?
Know a few anecdotal examples, of course it includes bonuses as well. For fundamental HFs, have seen such numbers in MMs. The same numbers can be achieved in the top trading firms. These include those straight out of uni, not with prior banking experience.
These numbers are not averages but are achievable. Usually a combination of a PM who does not hoard their spoils and strong team performance.
There are no HFs in London or anywhere else paying £500k for a student out of undergrad in a fundamental investing role. And if there are, the person paying this is very dumb to pay many, many times above market rate for a new grad that doesn't know anything about anything.
If you mean no HF experience and say 1.5-3 years in another job such as IB, £200k is definitely possible. £500k ok, there are very rare instances where this may have happened, but it will be a person hired in with a guidance to make say £200k in the year, and then they posted UNBELIEVABLE performance for a first year hire, the team had a huge year, and the PM is very generous - ie. someone with no experience came in and generated say $10m+ of P&L through their personal idea generation, while the team overall made say $50m+... the vast, vast majority of 1st year analysts don't have the opportunity to do this, and even if they did would not be able to (book size too small, PM doesn't trust them, ramp too slowly, too inexperienced). £500k is probably top <1% of first year guys.
First I’m going to assume this is an SM. You’re one year out of IB, it’s tough to imagine higher base salaries even for a jr HF role. Don’t think you have any negotiating leverage to discuss comp increase unless you have another offer from another similar sized HF for an analyst seat. Are you going to reject them if they don’t raise their comp?
Think it makes a difference whether it is a US fund with a London office versus a European fund. US funds with London office probably would pay more but downside is that the US office could see capital allocation to Europe as 2nd tier.
Your question on how bonus would scale given 12% fund returns? The biggest driver of your bonus will be how much of that 12% came from you. As someone coming in 1 year from banking, probably negligible and I’m sure you’re aware of that. But there’s hopefully a path to owning positions. It’s probably true that the upside is much higher as you starting putting risk on. But just remember the downside is also there. SMs however tend to have more stable pay structures though so you might get paid a bonus even if you personally lost money and the fund did ok.
Comparing IB and HF pay is apple and oranges. IB probably offers higher risk adjusted salaries. It’s just that your life would suck.
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